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The Return of Cap and Trade

The Kerry-Lieberman act is an extreme overreaction to a non-problem.

The heart of the proposed “American Power Act,” aka: the Kerry-Lieberman bill, is a national cap-and-trade program aimed at reducing greenhouse gas emissions. Yet, we’re already well down the road to reducing greenhouse gas emissions and, whether one thinks that such efforts are horribly misguided (as I do) or desperately needed (as Al Gore does), one cannot help but wonder: Why would anyone propose something like Kerry-Lieberman at all?

There have been a number of state and regional initiatives put into place over the last few years that will have a marked effect on both the amount of greenhouse gases emitted in the United States and on our economy. Three regional programs, the Western Climate Initiative on the west coast, the Regional Greenhouse Gas Initiative in the northeast and the Midwest Greenhouse Gas Reduction Accord have, or soon will, establish greenhouse gas reduction mandates that cover twenty three states, including very populous ones like New York, California and Illinois. In addition, twenty four states have adopted Renewable Portfolio Standards that require ever-increasing amounts of electricity generated in those states to come from renewable sources that do not introduce additional greenhouse gases into the atmosphere.

All told, thirty four states are participating in the big three regional initiatives described above, or have adopted Renewable Portfolio Standards, or both. That translates into seventy six per cent of the population already being committed to reducing greenhouse gas emissions. The Kerry-Lieberman bill envisions a seventeen percent reduction in greenhouse gas emissions by 2020, but an analysis of what has been and will be implemented suggests that we would achieve the same reduction – if not more – simply by allowing the states to follow through on what has been promised. So, at the risk of repeating myself: why propose Kerry-Lieberman at all?

It’s important to note that one provision of the proposed bill specifically eliminates the three regional programs that are currently in place and forbids states to implement new cap and trade programs. This effectively forces the sixteen states that have heretofore refused to play along with global-warming hysteria into playing the game. Those states include: some big energy-producers – Alaska, Wyoming, Louisiana, Oklahoma and West Virginia; most of the south – Arkansas, Tennessee, Mississippi, Alabama, Georgia, South Carolina and Florida; and four other mavericks Idaho, Nebraska, Kansas and Indiana. These sixteen states have refused to participate in a regional program or to implement any form of Renewable Portfolio Standards. Yet, Kerry-Lieberman would force them to get on the bus, whether they like it or not.

Call me a cynic, but I can see a couple of reasons why Democrats are going back to the cap and trade well once again, despite the public’s increasing rejection of alarmist global warming theories and despite the existence of so many greenhouse gas reduction programs across the country already. For one, there is the problem of the south. With three exceptions (North Carolina, Virginia and Texas – and the Lone Star State’s foray into reducing greenhouse gases has been somewhat tepid) there is little support to fight global warming in the old Confederacy. If Congress doesn’t step in and current state and regional plans were to play out, the inevitable result will be that energy will remain much more affordable south of the Mason-Dixon line as time goes on as compared to the rest of the nation and, economically at least, the South will indeed rise again.

The other compelling reason for the federal government to assume control of on-going greenhouse gas reductions efforts is, of course, money. Left unchecked, the states that are already involved in running or creating cap and trade schemes would control the billions upon billions of dollars that funnel through such programs. Can’t have that, now can we? A national cap and trade program may not be any more effective than the regional approaches, but it does allow the nanny-state to decide who gets what and when. Most importantly, a national program will fund the coffers of big government and that is ultimately more important than anything else.

A couple of other features of Kerry-Lieberman deserve a bit of attention. Petroleum refiners would be required to participate in the program, but they wouldn’t be allowed to actually make trades with respect to the fuel they produce. Rather, they would pay a set fee for allowances (an “allowance” is the trading unit in a cap and trade program) in proportion to the amount of fuel they produce and this fee will be paid directly to the government. This is what we used to call a tax, specifically a tax on gasoline, diesel fuel and other refined products, but under Kerry-Lieberman it’s all part of a trading program.

And then there’s the issue of offsets. Under a cap and trade scheme, emitters of greenhouse gases must hold one ton of allowances for each ton of greenhouse gases that they have actually emitted. Some of those allowances are distributed by the government. Any shortfall must be purchased from the market, unless the emission source can find “offsets” that reduce or eliminate the requirement to purchase additional allowances.

So what’s an offset? It’s any project that reduces, or is perceived to reduce, greenhouse gas emissions beyond the level that would otherwise be legally required. Collecting and destroying excess methane emissions from landfills is a classic example. It’s self-apparent that offsets are incredibly valuable in any cap and trade program. Kerry-Lieberman puts the decision on what is and what is not an eligible offset in the hands of a new bureaucratic structure. No doubt Senators Kerry and Lieberman believe this is a reasonable and fair approach. However, history tells us that bureaucrats are notoriously unreliable when it comes to dealing with powerful interests who are savvy enough to package snake oil the right way.

For example, there are many organizations who are currently selling speculative greenhouse gas offsets under the grand-sounding label of “avoided deforestation.” Essentially, this translates into holding trees hostage. These groups, some of which control hundreds of thousands of acres worth of timberland, want power companies to pay them big bucks in order to promise not to cut those trees down, not that they have the slightest intention of harvesting them in the first place. Whereas the equally-flawed House cap and trade bill, Waxman-Markey, didn’t envision allowing scams like “avoided deforestation” in the picture, Kerry-Lieberman opens the door to these schemes, by putting the ultimate decision into the hands of nameless, faceless bureaucrats.

There is some good to be found within the American Power Act, particularly as it addresses the need for more nuclear power plants. But, most of this proposal consists of a tired response to a tired, old and increasingly discredited fantasy of a problem. The House’s version of cap and trade, Waxman-Markey, was declared “dead on arrival” at the Senate. The same should hold true here. Kerry-Lieberman is a flawed, extreme over-reaction to a problem that does not exist.